Wisdom of the Market
1900 – The Random Walk Theory In his 1900 doctoral thesis, “The Theory of Speculation,” Louis Bachelier set forth his revolutionary conclusion that “there is no useful information contained in historical price 29 Therefore, the Louis Bachelier movements of securities.” expected return of speculation is zero (minus costs). Bachelier’s theory was rejected by his peers and sat untouched for 60 years until economist Paul Samuelson discovered it. Paul Samuelson, Eugene Fama and others would expand on Bachelier’s findings with the ensuing and revolutionary Random Walk Theory, which asserts that stock prices continuously react to new information and therefore move in a random and unpredictable fashion.
1906 – The Wisdom Of The Crowds
English scientist Francis Galton was a statistician who developed the important concepts of correlation and regression toward the mean. He discovered in the early 1900s that Francis Galton the collective wisdom of many is more accurate than the wisdom of a few. Galton arrived at his discovery of “The Wisdom of the Crowds” at a livestock convention, where a crowd of almost 800 people were asked to guess the correct weight of a butchered ox. Surprisingly, the average guess of the entire crowd was very close to the ox’s actual weight, only one pound off. No one individual came as
Published on Jun 1, 2015
This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...